FORM FIVE COMMERCE – PRODUCTION

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CAPITAL

Capital refers to man made resources used to create for the goods and services .capital is a factor of production as well as a means of earning income. capital is the factor of production be cause it consist raw materials ,total machinery ,roads ,buildings works, etc.   this actually renders production   possible and more efficient

          FUNCTIONS OF CAPITAL

• Increase standard or living of the people, by use of money capital to acquire basic needs.
• Increase production due to the use of capital   goods like machinery   or tractors.
• Provide production with capital.
• Provision of employment. investment of capital all sectors of economy e.g. agricultural industrial ,trade ,transport banking creates employment to numerous people.
• Makes specialization and division of labor possible.
• It also helps by( financial them) in the creating the auxiliary services like insurance , transport ,warehousing.

 

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      CHARACTERISTICS OF CAPITAL

• Its availability depends on the relative interest and profit obtained in the industries at a given point of a time.
• Its productivity depends on the level of technology , the deficiency of other factors and the extent to which , it put into use .
• Its mobile in the both senses ( as a factor of production and as a means of earning income) although some types of capital are extremely mobile e.g. ship yard ,railways network which are in geographical site.
• Capital is subjected to the law of increasing return the law refers to the landed of more economic working of the business when scale of production is enlarged .

 

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3. ENTREPRENEURSHIP

This is defined as art and science managing business. It involves organizaing and coordinating   all other factors of productions like land, labour in the process in productions. Organization

Entrepreneur

This is the is the person or group of people who undertakes the projects . He supplies the necessary money to arrange and pay the factors of production . From the proceeds of sale he pays for the use of the other factors of production and he balance constitute his profit.

FUNCTION OF AN ENTREPRENEUR

• To start the business .This means he initiation of the ideal of starting up the business
• To employ the factor of production i.e. land labour and capital. It means he is the one who assembles all factor of production .
• To produce product . he is the one who decides what to produce and how to produce.
• To sell the product produced . the product after being produced are sold to the dealer of final consumers.
• To reward factor used i.e. to pay rent, wages ,interest. This means after selling the products the factors are rewarded
• To bear responsibility of profit or loss .the entrepreneur bears all risk in the market.
• To control the business and make sure that the cost and wastage are minimized.

 

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ROLES   OF PROFIT IN BUSINESS
Profit making is essential in the business due to the following factors:

• Incentive.Profit is the a chief motivating factors in the business .it provides the necessary incentives to work hard and also services as a reward for risk bearing.
• Survival . Profit is essential for the cost of staying in the business and their risk..
• Growth and expansion. Profit ensure supply of capital for future innovation and expansion. It services as means of self-financing or pouching back profit. profit enable to attract new capital from shareholders and debenture.
• Prestige. a profit made concern enjoy goodwill in the society a loss making business shaved by every body in the society.
• Measure of efficiency. Profit is considered to be endorsed of success in the business it measures the efficiency and effectiveness of the business efforts . it serves as means of evaluating business performance

 

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        NATURE OF THE BUSINESS RISKS

     Business is the full of un-certainties .there is chance of loss from days , goods produced anticipation of demand to the day they are sold and payment is received , goods may decrease in the value due to the following reasons .

• Physical deterioration or shrinkage
• A fall in the market value
• Natural and man made catastrophe e.g. earth quake , fire and bad debts.
• A business may not be able to sell all goods due to the competition thus there is element of rise at every stage of production

 

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   CHARACTERISTICS OF BUSINESS RISKS

• Uncertainty. Business arises due to the uncertainty about the future cause of event .there are several types of uncertainty but some are Man made uncertainties e.g. lockout theft , bad debts such accidents caused by human failure lead to loss and Natural uncertainties e.g. flood, famine, drought , earth quake hails storm etc can result in the loss
• Variability. The degree of risk varies with size and nature of the business. Big firm often involves a higher degree of risks. A degree of risks also varies with time .period and degree of competition . firm dealing in the fashion goods faces risks than a firm dealing in essential commodities
• Profit in the level of breaking risks. An entrepreneur is willing to take risks in the hope of getting profit. That is way there is risk , also there possibility gain .

 

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       CAUSES OF BUSINESS RISK

• Natural causes. causes events such as floods , drought ,famine ,earth quakes ,volcanic eruption ,lighting snow falls ,epidemic results in the heavy losses of properties and income , human beings have most no control over nature.
• Human causes. The human factors is the main causes of risk in the business negligence or carelessness on the part of employees may lead to serious accident involving loss of life or properties . dishonest of the part of employees and costumers may result in forgery misappropriation of cash ,theft of goods etc in efficient accident management is often a cause of loss in the business.
• economic causes. This refers to the change of economic condition due to the fluctuation in demand and price of product and trade cycle and other un foreseen changes in income may also create a business risk .
• technical causes. Technical changes and mechanical defects also results in the business risk . change in technology may make machines absolutely before their expected life .mechanical failure such as out burst of boiler, leakage of gas etc may lead to heavy loss of life and properties , assets used in the business may be depreciated due to the shrinkage , loss in weight , vaporization etc
• political causes Political disturbance such as fall in the government , civil war etc . may lead to the heavy loss of life and properties

 

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TYPES OF GOODS PRODUCED IN PRODUCTION PROCESS

What are they?

1. Free goods: Are those things which are free by nature e.g. water, air, sun shine
   
2. Economic goods: Are those goods which are scarce and to obtain them human efforts is required e.g. machines etc
   
3. Consumer goods: Are those goods which are used directly by final consumers. They are either durable (long lasting) or perishable (take a short time to go bad)
   
4. Producer goods (capital): Are those goods which are used in the production process i.e. they are used to produce other goods like machines, spare parts etc
   
5. Perishable goods.Are goods which can easily go bad eg milk, fish, vegetable etc.
6. Demerit goods. Are goods which are harmfull to human lives.

 

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DIVISION OF LABOR AND SPECIALIZATION IN PRODUCTION

Concept of division of labor

-This is separation of jobs, activities and processes so that each person or group of people concentrate on what on what they can best, leaving others to do the rest. In the end there will be exchanging with one another.

Types of specialization

-This happens when one concentrates on a particular task effectively leaving others to be alone by the rest. Specialization is categorized in the following forms

1.  specialization Professional
   
2. Regional specialization
   
3. National specialization
   
4. Specialization process.
5. Specialization by commodities.

 

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LOCATION AND LOCALIZATION OF A INDUSTRY

Factors to be considered:

1. Availability of raw materials:
   

   A production center should be located near to the source of raw materials to avoid cost of   transportation and others
   

2. Nearness to the market.
   

   A production industry should be located in areas where the markets for the finished products is readily available
   

3. Nearness to the power and water supply.
   

   Since most of production industries need electricity for the machines to operate and water for their smooth running then they should be located in areas where water and electricity power can be readily available
   

4. Availability of labor supply.
   

   Production industries should be located in a place where labor is cheap and abundant (plenty)
   

5. Availability of transport and communication.
   

   These facilities are essentials to transport raw materials and finished goods to different places. This includes good roads, communication network and other infrastructure
   

6. Site for expansion.
   

   The location required should be large enough to allow for feature expansion when the firm grows naturally due to increased investment,
   

7. Government policy
   
8. Availability of other services 
   

 

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LOCALIZATION OF
INDUSTRIES

-Is the concentration of industries in a particular area or region, in this case all industries are established in one particular town. For example textile industries, and sugar industries etc

Advantages of localization

1. It leads to the development of other basic infrastructure
   
2. It brings about employment opportunities
   
3. It leads to the development of new subsidiary industries
   
4. Reduces the cost of production for the localized industries
   

 

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Disadvantages

1. It brings about regional imbalances
   
2. Economy becomes dependent on a localized area
   
3. Employment opportunities are limited to a particular type of labor
   
4. High cost of living

 

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ECONOMIES OF SCALE IN PRODUCTION

What is it?

-These are the advantages which occurred to the firm because of producing on a large quantity (scale). In that case, larger scale operations will result to the reduction costs

Advantages of large scale enterprise/ Economies of Scale

1. It leads to specialization in better quality work
   
2. It offers facilities and fringe benefits which stimulates workers in better production
   
3. Better use of machines which increase production efficiency at minimum goals
   
4. Large scale can afford advertising which provides and maintain its scale hence increased revenues
   
5. Large scale firm also affords to research which is geared to its improvement and better quality products
   

 

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Disadvantages of large scale enterprise/Dis-Economies of Scale

1. A firm needs to have a larger market so as to continue large scale production
   
2. It is often more difficult to control and manage the enterprise
   
3. The firm incurs the increase cost of production as a result of advertising staff welfare, offering discounts etc
   
4. They lack personal attention of the customers
   
5. Decisions take longer period to be implemented because of bureaucracy
   

 

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COSTS OF PRODUCTION

What are they?

-these are expenses to be incurred in production process. They include the following

1. Fixed costs
   
2. Variable costs
   

 

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What is fixed cost?

-these are expenses which do not change (remain fixed) as the production change i.e. output change for example salaries

What is variable cost?

-these are expenses which change (vary) with the change of output e.g. cost of raw materials, electricity

NB:    

1. Total cost; is the sum of total fixed cost and variable cost of production
   
2. Marginal cost; is the extra cost to be incurred for producing one extra output
   
3. Average cost; is the average of total variable and fixed costs of production
   
4. Opportunity cost; Is the alternative that has been foregone after making a certain choice due to scarcity of resources
   

 

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